Retailers find life outside the malls

'Lifestyle centers' are taking shopping's center stage

LAS VEGAS (CBS.MW) -- The catchphrase among those who build places in which to shop -- and, increasingly, shoppers themselves -- is "lifestyle centers."

Everywhere here at the annual convention of the International Council of Shopping Centers, people -- and there are some 40,000 at this event -- are talking about the newest, coolest, most exciting places to spend money. Though still in their infancy, open-air lifestyle centers are either changing the way we shop or changing retail for the way we shop.

The testing grounds

They are sprouting up in mostly affluent ZIP codes, typically the initial testing ground of retail concepts, and they promise to redraw the retail map for at least the next two decades.

That depends on whom you're speaking to. Mall developers and real estate investment trusts like Taubman and General Growth Properties don't think the industry should be so quick to embrace lifestyle centers and cast aside regional malls.

"You'll know what it is when you see it."
Alan Billingsley, RREEF/DB Real Estate

Clearly, though, they are the hottest idea in retail development and are to the new millennium what regional and strip malls were to the final decades of the old millennium. While many of them are built on sites that once housed defunct industrial operations like cement plants or were in dilapidated parts of towns, others are merely new-and-improved versions of aging regional suburban malls in need of sales-generating updates.

By definition -- and it's still a sketchy one -- these new shopping centers cater to the "lifestyle pursuits of consumers." That's the official ICSC description.

"At the end of the day, these centers are more than just bricks and mortar."
Ahsin Rasheed, Development Design Group

Alan Billingsley, the director of research for the institutional investment firm RREEF/DB Real Estate, which is financing many of these centers, says simply, "You'll know what it is when you see it."

Like regional malls, lifestyle centers comprise big blocks of bricks and mortar in which retailers open shops and sell stuff, though there seems to be a more balanced mix of retail stores to restaurants and entertainment venues like movie theaters at these new renditions.

Thirds place

Ahsin Rasheed, senior vice president of the architecture firm Development Design Group, insists there's a formula to this new center of the community that he consistently refers to as "utopian."

"The rule of thumb is that it's one-third food, one-third fashion and one-third 'other,' as in home-furnishings retailers or cinemas with 18 or 24 screens," he says.

Note that he names food before fashion. The regional malls of the '70s and '80s put fashion first, with food on hand mainly to fuel further shopping, never as a draw.

Lifestyle centers have three-star restaurants that once graced only the most vibrant downtowns.

The most significant differences between regional malls and lifestyle centers, though, are also the most obvious: size and roof. Lifestyle centers are considerably smaller in square footage and overall scale than the typical enclosed mall. They're less than half the size of such a mall at under 400,000 square feet, compared with the 1 million square feet that most regional malls take up. And the distance from the corner of one retailer to the door of the next is crucial to the comfort level. Ditto for such elements as awnings and signage.

"These centers," explains Rasheed, "are designed very, very carefully. We paced the country's greatest streets to determine how far stores were from each other and from the streets. We looked at how high the canopies were to make sure people don't feel out of scale."

Another notable and fundamental difference between regional malls and these new lifestyle centers is a mall's ability to shield the masses from inclement weather. These new shopping sites don't have one central roof under which all retailers cluster. Instead, there are groups of buildings that surround courtyards and fountains and ice rinks -- some of which feature fake ice -- and play areas. One model on view at the convention even shows beach-volleyball courts.

Familiar faces

Examining the store rosters of many of the estimated 150 centers that are up and running, as well as those on the drawing board, it appears that a typical tenant grouping would include a Barnes & Noble
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or a Borders
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a Banana Republic
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or an Ann Taylor
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with Starbucks
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and Cheesecake Factory
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big food-and-drink favorites. Though many include a department store such as Nordstrom
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or Neiman Marcus
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or Dillard's
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lifestyle centers don't look to the traditional "anchor" to attract other high-volume tenants.

Instead, they operate under the assumption that people want to live, work and play in the same space -- as if they were in a vibrant, organically developed city or town center. They want to grab a burger or linger at a fine-dining restaurant after they've picked up their dry cleaning and bought new underwear and jeans but before they see a movie.

That's why many lifestyle-center schemes are now gravitating toward mixed-use developments in which loft-style apartments and two-story row houses are integrated into the overall design.

"At the end of the day, these centers are more than just bricks and mortar," Rasheed argued. "People have to be comfortable in the space, and with the colors, the type of pavement -- is it brick or paved? -- the banners and the placement of them, even the types of trees we plant, because they want to spend time there."

Main Street pastiche

"Rockwellian" is another term Rasheed tosses around frequently. The demographic group he's designing for are those abundant baby boomers, whom he believes are searching for a return to the comforts of their youth and are at or approaching retirement age, so they have the money and time to go out and find the experience they seek.

He's not alone in that thinking. Many developers and retail venue managers are talking about "psychographics," a neologism that refers to psychology and demographics.

Ann Taylor real estate guru Giovanni Scotti calls these centers the next generation of retail because they hark back to earlier times and to the warm and fuzzy memories they conjure -- including for him personally. "They represent a trip back to my roots," he said. "Having grown up in Italy and having gone to the town piazza to the markets and to see movies, they remind me of that."

Though lifestyle centers match so-called New Urbanist mixed-use developments in playing on nostalgia and in some architectural elements, at a lifestyle center automobile storage remains central -- a reminder that this is still about suburban-style shopping. And Billingsley said the psychological power of these centers actually kicks in when consumers see that they can park a car in front of a store they're going to -- just like at a strip mall -- rather than swimming through a sea of autos to get to a door.

"People really like that -- [even if] they have one chance in 100 of actually getting that space," he said.

'Glorified strip centers'

Not surprisingly, the regional-mall operators and owners are skeptical. John Bucksbaum, president of General Growth Properties
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one of the country's biggest mall owners, labels lifestyle centers nothing more than "malls in sheep's clothing."

He stops short of calling them a "fad," but offers this quick assessment of potential winners and losers: "Critical mass is important to the sustainability of these concepts." And, he forecasts, shoppers will ultimately opt for the hundred or more retailers that occupy his malls rather than the dozen or so at a lifestyle center. "Tenants will come and go, and customers will choose the ones they really like.

"In the end, some of [the lifestyle centers] that get done will be disappointing," he adds.

If that's true, why then is so much money pouring into financing lifestyle centers over regional malls? In the past five years, 22 regional malls have been built while more than 100 lifestyle centers have popped up, according to ISCS.

Building out the concept

Right now, there are 55 lifestyle centers under construction -- and that's a conservative estimation -- while there are only six regional malls being erected. By 2006, the inventory of lifestyle centers can be expected to have more than doubled the 35 million square feet that's out there now.

To be sure, these centers are only a blip now on the retail radar when you take into consideration that there are more than 2 billion square feet under the roofs of the regional malls. But there seems to be no stopping them.

Taubman's take on the building boom is a simple one: The money's there, and it's cheap.

It matters, too, that it's far less expensive for a retailer to take space in an outdoor lifestyle center than it is at a regional mall where they must share in the costs of common space that needs to be air-conditioned and heated and painted and cleaned.

ICSC's chief economist, Michael Niemira, has scrutinized the concept and mostly agrees with Taubman, but he notes that that's "the nature of real estate."

He thinks many in the industry are losing sight of the broader development cycle in which people are trying all kinds of new things because that's what consumers want.

"These centers tell us that there's a lot of diversity out there and there's room for it," he said. "These retailers are trying new things and are willing to experiment. If anything, this time in the industry may be more the age of experimentation with shopping.

"And like everything before it in the retail industry, some things work and some don't, but the reality is you don't know until you try it."

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